Encino Motorcars, LLC v. Navarro
Encino Motorcars, LLC v. Navarro
Opinion
This case addresses whether a federal statute requires payment of increased compensation to certain automobile dealership employees for overtime work. The federal statute in question is the Fair Labor Standards Act (FLSA),
Five current and former service advisors brought this suit alleging that the automobile dealership where they were employed was required by the FLSA to pay them overtime wages. The dealership contends that the position and duties of a service advisor bring these employees within § 213(b)(10)(A), which establishes an exemption from the FLSA overtime provisions for certain employees engaged in selling or servicing automobiles. The case turns on the interpretation of this exemption.
I
A
Automobile dealerships in many communities not only sell vehicles but also sell repair and maintenance services. Among the employees involved in providing repair and maintenance services are service advisors, partsmen, and mechanics. Service advisors interact with customers and sell them services for their vehicles. A service
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advisor's duties may include meeting customers; listening to their concerns about their cars; suggesting repair and maintenance services; selling new accessories or replacement parts; recording service orders; following up with customers as the services are performed (for instance, if new problems are discovered); and explaining the repair and maintenance work when customers return for their vehicles. See App. 40-41; see also
Brennan v. Deel Motors, Inc.,
In 1961, Congress enacted a blanket exemption from the FLSA's minimum wage and overtime provisions for all automobile dealership employees. Fair Labor Standards Amendments of 1961, § 9,
The Department exercised that authority in 1970 and issued a regulation that defined the statutory terms "salesman," "partsman," and "mechanic." 35 Fed.Reg. 5896 (1970) (codified at
The 1970 interpretive regulation defined "salesman" to mean "an employee who is employed for the purpose of and is primarily engaged in making sales or obtaining orders or contracts for sale of the vehicles or farm implements which the establishment is primarily engaged in selling."
Three years later, the Court of Appeals for the Fifth Circuit rejected the Department's conclusion that service advisors are not covered by the statutory exemption.
Deel Motors,
*2123
Brennan v. North Bros. Ford, Inc.,
76 CCH LC ¶ 33,247 (E.D.Mich. 1975), aff'd
sub nom.
Dunlop v. North Bros. Ford, Inc.,
In the meantime, Congress amended the statutory provision by enacting its present text, which now sets out the exemption in two subsections. Fair Labor Standards Amendments of 1974, § 14,
In 1978, the Department issued an opinion letter departing from its previous position. Taking a position consistent with the cases decided by the courts, the opinion letter stated that service advisors could be exempt under § 213(b)(10)(A). Dept. of Labor, Wage & Hour Div., Opinion Letter No. 1520 (WH-467) (1978), [1978-1981 Transfer Binder] CCH Wages-Hours Administrative Rulings ¶ 31,207. The letter acknowledged that the Department's new policy "represent [ed] a change from the position set forth in section 779.372(c)(4)" of its 1970 regulation. In 1987, the Department confirmed its 1978 interpretation by amending its Field Operations Handbook to clarify that service advisors should be treated as exempt under § 213(b)(10)(A). It observed that some courts had interpreted the statutory exemption to cover service advisors; and it stated that, as a result of those decisions, it would "no longer deny the [overtime] exemption for such employees." Dept. of Labor, Wage & Hour Div., Field Operations Handbook, Insert No. 1757, 24L04-4(k) (Oct. 20, 1987), online at https://perma.cc/5GHD-KCJJ (all Internet materials as last visited June 16, 2016). The Department again acknowledged that its new position represented a change from its 1970 regulation and stated that the regulation would "be revised as soon as is practicable."
Twenty-one years later, in 2008, the Department at last issued a notice of proposed rulemaking. 73 Fed.Reg. 43654. The notice observed that every court that had considered the question had held service advisors to be exempt under § 213(b)(10)(A), and that the Department itself had treated service advisors as exempt since 1987.
In 2011, however, the Department changed course yet again. It announced that it was "not proceeding with the proposed rule." 76 Fed.Reg. 18833. Instead, the Department completed its 2008 notice-and-comment rulemaking by issuing a final rule that took the opposite position from the proposed rule. The new final rule followed the original 1970 regulation and interpreted the statutory term "salesman" to mean only an employee who sells automobiles, trucks, or farm implements.
The Department gave little explanation for its decision to abandon its decades-old practice of treating service advisors as exempt under § 213(b)(10)(A). It was also less than precise when it issued its final rule. As described above, the 1970 regulation included a separate subsection stating
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in express terms that service advisors "are not exempt" under the relevant provision.
B
Petitioner is a Mercedes-Benz automobile dealership in the Los Angeles area. Respondents are or were employed by petitioner as service advisors. They assert that petitioner required them to be at work from 7 a.m. to 6 p.m. at least five days per week, and to be available for work matters during breaks and while on vacation. App. 39-40. Respondents were not paid a fixed salary or an hourly wage for their work; instead, they were paid commissions on the services they sold.
Respondents sued petitioner in the United States District Court for the Central District of California, alleging that petitioner violated the FLSA by failing to pay them overtime compensation when they worked more than 40 hours in a week.
The Court of Appeals for the Ninth Circuit reversed in relevant part. It construed the statute by deferring under
Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc.,
II
A
The full text of the statutory subsection at issue states that the overtime provisions of the FLSA shall not apply to:
"any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements, if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles or implements to ultimate purchasers." § 213(b)(10)(A).
The question presented is whether this exemption should be interpreted to include service advisors. To resolve that question, it is necessary to determine what deference, if any, the courts must give to the Department's 2011 interpretation.
In the usual course, when an agency is authorized by Congress to issue regulations and promulgates a regulation interpreting a statute it enforces, the interpretation receives deference if the statute is ambiguous and if the agency's interpretation is reasonable. This principle is implemented by the two-step analysis set forth in
Chevron
. At the first step, a court must determine whether Congress has "directly spoken to the precise question at issue."
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If so, "that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress."
A premise of
Chevron
is that when Congress grants an agency the authority to administer a statute by issuing regulations with the force of law, it presumes the agency will use that authority to resolve ambiguities in the statutory scheme. See
One of the basic procedural requirements of administrative rulemaking is that an agency must give adequate reasons for its decisions. The agency "must examine the relevant data and articulate a satisfactory explanation for its action including a rational connection between the facts found and the choice made."
Motor Vehicle Mfrs. Assn. of United States, Inc. v. State Farm Mut. Automobile Ins. Co.,
Agencies are free to change their existing policies as long as they provide a reasoned explanation for the change. See,
e.g.,
National Cable & Telecommunications Assn. v. Brand X Internet Services,
B
Applying those principles here, the unavoidable conclusion is that the 2011 regulation was issued without the reasoned explanation that was required in light of the Department's change in position and the significant reliance interests involved. In promulgating the 2011 regulation, the Department offered barely any explanation. A summary discussion may suffice in other circumstances, but here-in particular because of decades of industry reliance on the Department's prior policy-the explanation fell short of the agency's duty to explain why it deemed it necessary to overrule its previous position.
The retail automobile and truck dealership industry had relied since 1978 on the Department's position that service advisors are exempt from the FLSA's overtime pay requirements. See National Automobile Dealers Association, Comment Letter on Proposed Rule Updating Regulations Issued Under the Fair Labor Standards Act (Sept. 26, 2008), online at https://www.regulations.gov/# !documentDetail;D=WHD-2008-0003-0038. Dealerships and service advisors negotiated and structured their compensation plans against this background understanding. Requiring dealerships to adapt to the Department's new position could necessitate systemic, significant changes to the dealerships' compensation arrangements. See Brief for National Automobile Dealers Association et al. as
Amici Curiae
13-14. Dealerships whose service advisors are not compensated in accordance with the Department's new views could also face substantial FLSA liability, see
The Department said that, in reaching its decision, it had "carefully considered all of the comments, analyses, and arguments made for and against the proposed changes." 76 Fed.Reg. 18832. And it noted that, since 1978, it had treated service advisors as exempt in certain circumstances.
But when it came to explaining the "good reasons for the new policy,"
Fox Television Stations,
It is not the role of the courts to speculate on reasons that might have supported an agency's decision. "[W]e may not supply a reasoned basis for the agency's action that the agency itself has not given."
State Farm,
* * *
For the reasons above, § 213(b)(10)(A) must be construed without placing controlling weight on the Department's 2011 regulation. Because the decision below relied on
Chevron
deference to this regulation, it is appropriate to remand for the Court of Appeals to interpret the statute in the first instance. Cf.
Mead,
It is so ordered.
Justice GINSBURG, with whom Justice SOTOMAYOR joins, concurring.
I agree in full that, in issuing its 2011 rule, the Department of Labor did not satisfy its basic obligation to explain "that there are good reasons for [a] new policy."
FCC v. Fox Television Stations, Inc.,
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I write separately to stress that nothing in today's opinion disturbs well-established law. In particular, where an agency has departed from a prior position, there is no "heightened standard" of arbitrary-and-capricious review.
The Court's bottom line remains unaltered: " '[U]nexplained inconsistency' in agency policy is 'a reason for holding an interpretation to be an arbitrary and capricious change from agency practice.' "
Ante,
at 2126 (quoting
National Cable & Telecommunications Assn. v. Brand X Internet Services,
Justice THOMAS, with whom Justice ALITO joins, dissenting.
The Court granted this case to decide whether an exemption under the Fair Labor Standards Act (FLSA),
I agree with the majority's conclusion that we owe no
Chevron
deference to the Department's position because "deference is not warranted where [a] regulation is 'procedurally defective.' "
Ante,
at 2125. But I disagree with its ultimate decision to punt on the issue before it. We have an "obligation ... to decide the merits of the question presented."
CBOCS West, Inc. v. Humphries,
Federal law requires overtime pay for certain employees who work more than 40 hours per week. § 207(a)(2)(C). But the FLSA exempts various categories of employees from this overtime requirement. § 213. The question before the Court is whether the following exemption encompasses service advisors:
"The provisions of section 207 of this title shall not apply with respect to-
.....
"(10)(A) any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements, if he is employed by a nonmanufacturing establishment primarily engaged in the business of selling such vehicles or implements to ultimate purchasers." § 213(b).
I start with the uncontroversial notion that a service advisor is a "salesman." The FLSA does not define the term "salesman," so "we give the term its ordinary meaning."
Taniguchi v. Kan Pacific Saipan, Ltd.,
566 U.S. ----, ----,
A service advisor, however, is not "primarily engaged in selling ... automobiles." § 213(b)(10)(A). On the contrary, a service advisor is a "salesman" who sells servicing solutions. Ante, at 2121. So the exemption applies only if it covers not only those salesmen primarily engaged in selling automobiles but also those salesmen *2130 primarily engaged in servicing automobiles.
The exemption's structure confirms that salesmen could do both. The exemption contains three nouns ("salesman, partsman, or mechanic") and two gerunds ("selling or servicing"). The three nouns are connected by the disjunctive "or," as are the gerunds. So unless context dictates otherwise, a salesman can
either
be engaged in selling
or
servicing automobiles. Cf.
Reiter v. Sonotone Corp.,
Context does not dictate otherwise. A salesman, namely, one who sells servicing solutions, can be "primarily engaged in ... servicing automobiles." § 213(b)(10)(A). The FLSA does not define the term "servicing," but its ordinary meaning includes both "[t]he action of maintaining or repairing a motor vehicle" and "the action of providing a service." 15 Oxford English Dictionary 39; see also Random House 1304 (defining "service" to mean "the providing ... of ... activities required by the public, as maintenance, repair, etc."). A service advisor's selling of service solutions fits both definitions. The service advisor is the customer's liaison for purposes of deciding what parts are necessary to maintain or repair a vehicle, and therefore is primarily engaged in "the action of maintaining or repairing a motor vehicle" or "the action of providing a service" for an automobile.
Other features of the exemption confirm that a service advisor is a salesman primarily engaged in servicing automobiles. Consider the exemption's application to a "partsman." Like a service advisor, a partsman neither sells vehicles nor repairs vehicles himself. See
Respondents' contrary contentions are unavailing. They first invoke the distributive canon: "Where a sentence contains several antecedents and several consequents," the distributive canon instructs courts to "read [those several terms] distributively and apply the words to the subjects which, by context, they seem most properly to relate." 2A N. Singer & S. Singer, Sutherland on Statutory Construction § 47.26, on p. 448 (rev. 7th ed. 2014). Respondents accordingly maintain that
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Respondents also resist this natural reading of the exemption by invoking the made-up canon that courts must narrowly construe the FLSA exemptions. Brief for Respondents 41-42. The Ninth Circuit agreed with respondents on this score.
* * *
For the foregoing reasons, I would hold that the FLSA exemption set out in § 213(b)(10)(A) covers the service advisors in this case. Service advisors are "primarily engaged in ... servicing automobiles," given their integral role in selling and providing vehicle services. Accordingly, I would reverse the judgment of the Ninth Circuit.
Unlike Justice THOMAS, I am not persuaded that, sans
Chevron,
the Ninth Circuit should conclude on remand that service advisors are categorically exempt from hours regulations. As that court previously explained, "[s]ervice advisors may be 'salesmen' in a generic sense, but they [may fall outside the exemption because they] do not personally sell cars and they do not personally service cars."
If the Department decides to reissue the 2011 rule, I doubt that reliance interests would pose an insurmountable obstacle. As the Court acknowledges,
ante,
at 2126, an affirmative defense in the Fair Labor Standards Act (FLSA) protects regulated parties against retroactive liability for actions taken in good-faith reliance on superseded agency guidance,
Reference
- Full Case Name
- ENCINO MOTORCARS, LLC, Petitioner v. Hector NAVARRO, Et Al.
- Cited By
- 461 cases
- Status
- Published